Interview with the Economist on 24 January in London

Subjects: European debt crisis; East Asia Summit; China

Transcript, E&OE, proof only

London

7 February 2012

View interview at The Economist online

JOURNALIST: Kevin Rudd thank you for talking to the Economist.

MINISTER: It's good to be with you, good magazine.

JOURNALIST: I'm delighted to hear that.

You've come to Europe at a time when the continent is in something of a funk with a deep financial crisis and political indecisions. From you perspective is it as bad as we think it is and what from Australia can you tell us about this crisis and can you in any sense perhaps stiffen the continent's spine on this issue?

MINISTER: Well we don't overestimate the importance of our views on these matters but we are the 12th largest economy in the world; we're members of the G20; we follow these matters acutely. We're conscious of the consequences of things going wrong not just for Europe but for the global economy.

I think there's a real danger that Europe can talk itself into an early economic grave. That's completely unnecessary. The formidable strengths of the European economies remain, whether it's in aggregate economic activity or whether it's in their size and slice of global exports, or the formidable volumes of European investment capital which makes jobs and growth possible in other parts of the world and the history of innovation, the number of global brands.

This is a formidable set of strengths.

I don't underestimate the current challenges. I'm aware of them, but you begin to see contours of a way through this such as the firewall in terms of the importance of both the ESF and also potentially the ECB providing confidence to markets and to the marketplace. There is also the importance of the financial stability compact, the fiscal compact and the importance also of domestic economic reform agendas such as the type we've seen most recently in Italy.

The contours of these responses by way of policy are fairly clear now. Everyone is worried about what will happen to Greece in the final negotiation of the settlement there but I don't think we should get carried away by excessively fashionable pessimism.

One thing though we do need to work on, which is difficult to see the contours emerge at this stage, is the precise new growth formula for Europe for the real economy and real jobs. I know there are fine minds working on that as we speak.

JOURNALIST: When you were Prime Minister I was based in Asia and I followed with interest your ideas for an Asia-Pacific community.

Now it seems to be that what you were arguing was that a huge strategic shift was taking place towards the Asia-Pacific region but that the infrastructural and institutional capabilities of the region were woefully lacking.

Now tell me if I'm oversimplifying things but it seems to me your chief concern was to make sure that the US was engaged as the main guarantor of security in the Asia-Pacific region and that the chief potential threat to the region's stability was China.

MINISTER: I think our overall view is best to put it in these terms is that the Asia-Pacific region or let's call it Asia more broadly in both its Pacific and Indian Ocean arms represents the hope of the 21st century global economy. Let's just look at the numbers - this is a phenomenal generator of global economic growth and of trade and investment.

However, it might be the hope of the 21st century global economy, but it's beset by positively 19th century security policy arrangements; from unresolved territorial conflicts from the Korean peninsula through the South China Sea and elsewhere.

Therefore the missing element in the region's institutions and architecture was an institution capable of bringing together the principle powers of the region with an open agenda on security and economic questions on a summit level and on a regular basis.

We didn't have that in the past but now with an expanded East Asia Summit, as of November last year, we have that and for the first time in the history of Asia we have America, China, Japan, Korea and other countries in South East Asia, ourselves and India, all around the same table discussing openly the future of the region's security and its economy so its an important step forward.

America in the region is important. America out of the region, I think would be a disaster.

JOURNALIST: Is the East Asia Summit in a sense starting to resemble what you rather hoped an Asia Pacific community would be like? In other words can you see the EAS coming to be that predominant forum for collective engagement?

MINISTER: Very much so. This is entirely the vision that we outlined way back in 2008.

What I said in 2008 was that we wanted an institution with an open agenda with security and economic matters to be discussed at summit level with all the principle players around the table. For the first time in the history of Asia we have that.

Our challenge now however, is to make it work and that's where Australian diplomacy will be focused in the time ahead.

JOURNALIST: Do you consider it rational western policy to hedge against China's rise, and if so what form should that hedging take and what is the threat of China.

MINISTER: I think with the rise of any new power including China, obviously changes occur in the existing global and regional order. That is inevitable.

The question is how that is accommodated and whether it can be accommodated peacefully and that is the core project of Australian diplomacy in the Asia-Pacific region.

Therefore that means we work with the Chinese regionally and globally together with other partners - to continue to encourage them to adhere to and enhance the global and regional rules based system so when China becomes 'top dog', economically, it's in their interest for them to adhere to the rules-based system in the future.

At the same time though, countries will take legitimate precautions about all sorts of future security policy scenarios and that is why alliance structures will remain such as ours with the United States as well as our own commitment to our own national defence preparedness.

JOURNALIST: It sounds like you're ready to concede that China might be 'top dog' economically, but you're not prepared to accept that to be the case militarily.

MINISTER: Well the numbers are very clear economically. In fact it was reported in the pages of this august journal most recently.

China in purchasing parity terms is likely to pass the United States somewhere around 2016, less than five years from now. Against market exchange rate assumptions, it is likely to do so before the end of the decade. These are big and fundamental geo-economic shifts.

It will be the first time a non-democracy and the first time a non-Western country has been the world's largest economy in a couple of a hundred years.

But on the other extension of power, which is obviously military power, this will be more complex in its evolution. Let me tell you there is I think a common resolve across Asia including our friends in Beijing to try to make this thing work.

The very thought of conflict, of going to war in East Asia would so fundamentally undermine our collective and combined economic interests and broader values, that I doubt that it would be contemplated, however appropriate preparations are always in place against the possibility that we see a real security challenge emerge somewhere in the wider region.

JOURNALIST: Finally, speaking on domestic issues if I may, the Prime Minister has just lost a key ally and now the majority in Parliament is very slight.

In opinion polls she has never been higher than your lowest point when you were Prime Minister.

It would seem to me that if Labor was to have any chance at the next election in the year after next it would be under a party headed by you. Would you agree?

MINISTER: Well the Prime Minister has been dealing with some very difficult challenges since a very narrow election win in August 2010 and the political policy challenges coming out of that wafer thin majority and has had big policy challenges to deal with such as climate change and a carbon tax so this has been a very difficult road to hoe.

In terms of the future, I can just answer your question by saying I'm a very happy Foreign Minister, I enjoy the work and I intend to stay there.

JOURNALIST: Thank you very much indeed. My last question was like trying to draw 'Rudd out of a stone' if I can use that pun.

MINISTER: That's appalling poetry and unfitting of the pages of the Economist.

JOURNALIST: Kevin Rudd thank you very much for thoughtful answers of the previous questions and thank you for speaking to the Economist.

MINISTER: I've enjoyed it very much.

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